By David Ji
As 2016 approaches, landlords, tenants, and investors have started to ask where the new opportunities are to be found in global real estate markets in the year ahead. With changes in the wider economy and evolutions in the corporate workspace, Knight Frank and ULI jointly organized a seminar earlier this month to address these issues as well as launch Knight Frank’s Global Cities 2016 report.
Presented by Nicholas Holt, Knight Frank’s Asia Pacific head of research, Global Cities highlights megatrends such as urbanization and the unprecedented impact that technology will have on businesses, societies, economies, cultures, and personal lives. Both cities and office markets are responding to these changes in order to meet the needs of population, business, and workers. Opportunities will continue to be in major global gateway cities, where people want to live, work, and play, according to the report.
This is the second year that Knight Frank has issued Global Cities, and the first year the firm teamed up with ULI to launch the report.
“The United Nations is forecasting population in the world’s cities to increase by 380 million people in the next five years,” Holt said. “The increased urbanization, combined with greater business demand, will cause office rents to rise in the key global cities. Knight Frank has been tracking prime office rents in 20 of these global cities and forecasts that Madrid will top rental growth at 22.2 percent by 2018, followed closely by Mumbai [21.3 percent] and San Francisco [20.2 percent].”
Urbanization, aging populations, the growth of the middle class, and technological advances are the forces driving global city development and affecting businesses, according to the report. How cities respond to these trends will determine how they attract talent and stay competitive. Even though investors’ focus is still in the gateway cities, cities in developing countries like Mumbai and Delhi will attract attention in the future.
Holt’s presentation of Global Cities set the tone for the ensuing panel discussion moderated by Alison Cooke, managing director of Starr International Investment Advisors (Asia) Ltd.
Both Holt and Piers Brunner, chief executive officer, Greater China, for Knight Frank, shared their observations on the impact of an aging population in Asia on real estate investment. They pointed out that this impact has not been as dramatic as in the West, while related investment markets such as in senior housing have been more regulated and prolific in countries like Australia.
Meanwhile, Alex Yong, vice president, project development, at Jerde Partnership, observed that the design and layout of buildings—especially in residential development—are often determined by family values and the need for family members to get along, in those countries like China where such things matter more.
David Gester, chief development officer, L Real Estate, shared his observations on the retail sector and suggested that physical shopping space still provides a venue for social interaction even when goods might be ordered online and delivered through logistic channels. Logistics in China has driven the explosion of online shopping as well as spreading trade to other continents through the One Belt One Road initiative, a massive strategy and program of investment from the Chinese government in roads, energy pipelines, and other infrastructure that will connect China to markets in Europe, South Asia, and Southeast Asia, Brunner said.
On the topic of regulation, both Holt and Yong felt that in developing countries such as China and India, the government has the most influential control over how markets are developing. So, a better educated and informed decision-making process is sorely needed in Asia. Meanwhile, Gester has emphasized the cultural elements in many of the planning and design processes.
These discussions aside, the audience was keenly interested in the changes of future tenant profiles in financial hubs such as Hong Kong. Brunner noted that in Hong Kong, the setup of financial districts remains largely unchanged. However, high-tech companies increasingly are establishing themselves in areas traditionally dominated by the financial industry. The integration of nonfinancial services within financial districts was seen as a positive development given the rising popularity of internet-plus businesses and the general trend toward mixed-use environments.
Please click here to download the report.
David Ji is director, head of research and consultancy, Greater China, at Knight Frank.